Strengthening US financial institutions' sanctions compliance through better data and continuous monitoring

Abstract

The Russian invasion of Ukraine in February 2022, and the subsequent slew of sanctions imposed by the United States (USA), European Union (EU) and other lawmaking bodies, illustrated current challenges in financial institutions' sanctions compliance programmes. These challenges evolve as economies continue to become more intertwined and sanctions continue to be imposed at a global scale. New sanctions regimes, evolving regulations, increased transactional volumes and rapidly changing geopolitical situations create a complex regulating environment to operate in and comply with. The challenges of this complex regulating environment fall into three broad categories: the global reach of sanctions when large multi-state bodies like the EU or United Nations (UN) impose them and when the target is a large economy with vital economic relationships with many other countries; the timing of various sanctions (eg when the EU imposes sanctions, then an individual European country imposes separate sanctions and then various countries begin adding individuals or entities `ad hoc` to their sanctions); and identity resolution in terms of the sanctioned entities and individuals. These challenges are a major complication for financial institutions since getting compliance wrong could lead to heavy fines and even criminal prosecution.1 This paper will illustrate the global issues with sanctions programmes that were acutely revealed when governments enacted large and unprecedented sanctions on the 11th largest economy in the world, how the current approach to sanctions compliance is inadequate to address such a complex and ever-changing sanctions environment, and, finally, how to strengthen sanctions compliance and manage risk with better data, proactive network building, continuous monitoring and adverse media screening.